Import Prohibition as a Trade Policy
Instrument: The Nigerian Experience

Ademola Oyejide, A. Ogunkola and A. Bankole*

Disclaimer:
Opinions expressed in the case studies and any errors or omissions
therein are the responsibility of their authors and not of the
editors of this volume or of the institutions with which they are
affiliated. The authors of the case studies wish to disassociate the
institutions with which they are associated from opinions expressed
in the case studies and from any errors or omission therein.

I. Trends in import prohibition

From the mid-1970s onwards, Nigeria’s main
trade policy instruments shifted markedly away from tariffs to
quantitative import restrictions, particularly import prohibition and
import licensing. As a reflection of this shift, Nigeria’s customs
legislation established an import prohibition list for trade items and
an absolute import prohibition list for non-trade items. While the trade
list covers the full range of agricultural and manufactured products,
the non-trade list relates to goods and services that are considered to
be harmful to human, animal and plant health, as well as public morals.
Typical examples of products which feature on this second list include
weapons, obscene articles, airmail, photographic printing paper, base or
counterfeit coins and second-hand clothing. Furthermore, the customs
legislation empowers the government to modify these lists at its
discretion, by adding or subtracting items through customs and excise
notices and government announcements.

Based on this legislation, the government
placed seventy-six broad groups of import items on the import
prohibition lists in 1978. The number of items placed under import
prohibition increased further, particularly during 1982-5. Hence, at the
beginning of 1986, roughly 40% of agricultural and industrial products,
in terms of tariff lines, were covered by import prohibitions. This
sharp increase in the coverage of import prohibitions abated somewhat
during the second half of the 1980s; by 1989, import prohibition covered
about 29% of agricultural products and 20% of industrial products
measured, again, in terms of tariff lines (GATT 1991).

Although particular items moved in and out of
the import prohibition lists over the next ten years, the general trend
in reduction in the number of items whose importation was prohibited was
broadly sustained. Hence, by 1998, only 127 (out of 5, 147 tariff lines,
or 2.5%) remained on the import prohibition list for trade. But with
effect from late 2001 and continuing until early 2004, another upsurge
in the number of items placed under import prohibition has occurred. In
particular, the number of broad product groups under import ban rose
from twenty-seven in February 2003 to thirty-five in January 2004.

In terms of sectoral coverage, import
prohibition has focused on such agricultural products as fruit,
vegetables, grains, meat and fish, as well as manufactured products
including rubber, wood and cork, textiles and chemicals. In 1989, for
example, close to 96% of the tariff lines for textiles and clothing were
subjected to an import prohibition regime, with similar coverage ratio
for several other sectors being as follows: furniture (93%), wood and
wood products (45%), rubber (5%) and chemicals (1%) (GATT 1991). During
1982-5, the import prohibition coverage ratio for food, beverages and
tobacco was over 50%.

The pervasive use of import prohibition as an
instrument of trade policy in Nigeria derives from a long-standing
import policy regime which was designed to promote industry, employment
and balance-of-payments objectives in the context of an import
substitution-industrialization strategy (Oyejide 1975). Key elements of
this regime include protecting existing domestic industries and reducing
the country’s perceived dependence on imports, while at the same time
ensuring the availability of raw materials and capital goods which
cannot be obtained from domestic sources. With specific reference to the
agricultural sector, trade policy has generally been aimed at
discouraging importation of all food and raw materials that the county
is deemed to have the resources to produce. In the case of the
manufacturing sector, a major goal has been to increase the local
content of Nigerian industrial output through enhanced use of local raw
materials. The achievement of this goal is promoted by the government
through various measures and incentives, including import prohibition.

Sectoral coverage of import prohibition has
obviously varied over time. But it has been determined largely by the
general policy that imports of certain products could be prohibited
either if they are judged to be ‘not essential’ or when they compete
with domestically produced goods that are available in adequate
quantities.

The various motivations for using import
prohibition have, however, not been fully reflected in the
justifications periodically offered by the government when import
prohibition notices are issued. For instance in April 1982, when a wide
range of products was placed under import prohibition, the Nigerian
government notified the General Agreement on Tariffs and Trade (GATT) of
the measures taken with the claim that the measures had been
necessitated by unfavourable external circumstances, including a
deterioration in the terms of trade and sharp declines in the country’s
oil revenue and foreign exchange reserves. But import prohibition was
periodically used for other purposes. The almost permanent ban on the
importation of textile and clothing products since the late 1970s can be
explained primarily in terms of protecting local industries; while
import prohibition applying to such items as gypsum, kaolin, bentonites
and barytes reflects attempts to promote local sourcing of raw materials
for manufacturing in Nigeria. Thus when in March 1998 Nigeria notified
the WTO Committee on Safeguards that the import prohibitions on wheat
flour, sorghum, millet, gypsum and kaolin were imposed for safeguard
reasons, there was credible reason to question the claim.

The pervasive use of import prohibition in
Nigeria has another, perhaps equally important, reason: it is
administratively easier. In Nigeria’s responses to the questions
raised on this matter during discussions at various GATT and WTO fora,
it has been argued that import prohibitions are easier to monitor than
price-based measures, since the presence of the banned products on local
markets is, in principle, sufficient for enforcement.

II. Local and
external players and their roles

It is well established that any trade policy
change is likely to generate both winners and losers, even if the
overall net impact is positive. Economic agents and other stakeholders
involved with, or affected by, any trade policy change can be classified
broadly into two groups; they are either local (domestic) or external
(foreign). Each of these broad groups can be broken down into more
specific interest groups, such as producers, importers, exporters,
traders, workers and consumers. With specific reference to the import
prohibition policy in Nigeria, local stakeholders range from the
policy-making and enforcement agencies through producers of the banned
imports and their workers to the importers and consumers of banned
products.

On the external front, direct stakeholders
include countries whose export products are denied market access in
Nigeria as a result of the import prohibition policy, as well as
regional and multilateral institutions (such as the Economic Community
of West African States (ECOWAS), the IMF, the World Bank and the WTO)
which exercise policy surveillance mandates in this area.

In capturing the perceptions and views of
local and external players directly involved in and affected by Nigeria’s
import prohibition policy, primary reliance has had to be on published
official documents and the print media. Given the period over which the
policy has been tracked, interviews would have focused too narrowly on
more recent events and be biased by the possibility of perception,
revision and rationalization. In addition, interviews may not yield
useful results, as officials of government and quasi-government agencies
in Nigeria are often unwilling to go on record with views that may be
critical of current public policy posture.

Among local players, the government and its
agencies have played a prominent role in the initiation and sustenance
of the policy of import prohibition. Much of the local opposition to
import bans has generally been voiced by importers and traders. The
consumers who ultimately bear the burden of the resulting higher prices
and poor quality and limited variety of locally produced alternatives
have remained largely silent, probably because they have not been
organized. By contrast, the producers of import-competing goods and
their employee unions have generally supported import bans.

On the side of government, policy statements
and policy actions with respect to import prohibition have not always
been synchronized and consistent. In particular, the apparent and often
repeated decision to move away from the use of quantitative trade
restriction measures has not been implemented in practice. In the 1970s,
of course, policy statements and actions reflected the same restrictive
trade policy posture. Thus, Roland Adeleye, Federal Commissioner for
Industries, correctly reflected both policy and action when he stated in
1977 that ‘the federal government will not import into Nigeria
anything that is produced in adequate quantity by Nigerian
industrialists’ (Nigerian Tribune 1977).

Divergence between policy statement and policy
action has been particularly strong since the late 1980s. For instance,
in a policy statement submitted to the WTO by the Nigerian government in
1998, it was indicated that ‘the list of items removed from import
prohibition…. continues to lengthen’ (para. 14), and that ‘necessary
steps are being taken by government to comprehensively eliminate all
existing items on the import prohibition list as soon as possible’ (para.
17). Along the same lines, President Olusegun Obasanjo’s foreword to
the Trade Policy of Nigeria (Federal Ministry of Commerce 2002)
envisages a ‘dynamic trade reorientation which will signify a clear
departure from past regimes of controls and intervention’.
Furthermore, this document affirmed that ‘government shall, within the
limits of its rights and international obligations and agreements,
strive to eliminate quantitative trade measures’ (p. 10). In practice,
however, import bans actually increased in scope and coverage until
2004.

This policy had several negative effects as
far as the importers of and traders in a wide range of products on the
import prohibition list were concerned. Thus, the Refrigerator and Air
Conditioner Dealers Association (RADA), in its statement, ‘condemned
the ban on importation of these products because it would lead to
substantial losses of income and jobs, and further aggravate the
unemployment situation’ in Nigeria (Guardian October 2001).
Similarly, the Motor Dealers Association of Nigeria (MODAN) issued a
statement which argued that ‘the ban on used vehicles would destroy
four million jobs’ (Guardian December 2001). In the same vein,
the Embroidery Lace Dealers Association of Nigeria (ELDAN) claimed that
‘an immediate enforcement of the ban on importation of textiles would
inflict colossal financial loss on textile imports and eliminate three
million jobs’ (Guardian March 2004).

The domestic producers of banned imports and
the workers’ unions associated with them not only generally lobby
government to impose and maintain its import prohibition policy but also
articulate its advantages. Thus, in its reaction, the National
Association of Cottage Industrialists of Nigeria (NACIN) urged the
government to ‘ensure strict implementation of the ban on imported
products as a means of guaranteeing the survival of small and
medium-scale enterprises and to create employment for the nation’s
teeming graduates’ (Guardian February 2004). In the statements
of the Manufacturers Association of Nigeria (MAN), this point of view
was pushed further by ‘proposing a minimum lifespan of five years for
the current import restrictions policy as a means of ensuring that it
achieves the desired results’ (Guardian March 2004). Finally,
the National Union of Textile, Garment and Tailoring Workers of Nigeria
(NUTGWN) ‘considered the textile ban as the best development in the
textile industry in recenttimes because of its beneficial impact on
local output and employment’ (Guardian April 2004).

The key external stakeholders that have played
active roles in the discussions surrounding Nigeria’s import
prohibition policy include several countries whose exports have been
directly affected and a number of multilateral organizations. Between
1980 and 1991, at least three countries lodged formal complaints against
Nigeria with respect to import prohibitions: Norway submitted a
complaint on Nigeria’s import ban on stockfish, Côte d’Ivoire on
the import ban on textiles, and the United States on the import ban on
wheat and rice. While both Norway and the United States cited violation
of GATT rules in their complaints, Côte d’Ivoire’s case rested on a
violation of the ECOWAS treaty. These complaints were settled through
bilateral negotiation and consultation. More recently, both the European
Union (EU) and Benin have raised issues with Nigeria with respect to its
import prohibitions. Speaking on behalf of the EU, Claude Maerten, an
official of the EU Trade Directorate-General, argued that ‘Nigeria’s
import ban was not compatible with, and indeed forbidden by, WTO rules’
(Guardian July 2003). In the case of Benin, the country’s
ambassador, Benoit Adekambi, issued a statement in which he claimed that
‘Nigeria’s import bans, particularly on textile products, had dealt
a severe blow to the economy of the Republic of Benin’ and ‘constituted
a violation of the Memorandum of Understanding between the two counties
regarding continuous trade liberalization’ (Guardian November
2003).

The three multilateral organizations which
have expressed views on Nigerian import prohibition policy can be
classified in two categories. In one of these are the World Bank and the
IMF, while the other consists of the WTO. Both the World Bank and the
IMF have only an advisory role with respect to trade and other policy
matters in Nigeria. It is in this context that both organizations
encouraged the liberalization of Nigeria’s policy regimes.

The resurgence of import prohibition
represents a sharp reversal of the trade liberalization programme
initiated in the mid-1980s with the support of the IMF and the World
Bank. Both organizations provided technical and policy advice, and the
World Bank also provided support through its lending programme. In
particular, the World Bank made two quick loans to promote trade
liberalization: the Trade Policy and Export Development Loan of US$450
million in 1987, and the Trade and Investment Policy Loan of US$500
million in 1989 (World Bank 1994). Both had as part of their objectives
the reduction and eventual elimination of import prohibition. Although
these loans were fully disbursed, subsequent evaluations concluded that
the import regime reform encountered strong opposition both within and
outside the government and that Nigeria had, in general, displayed a
poor implementation record and commitment to import liberalization
(Castillo 1993). More specifically, the World Bank, in its assessment of
Nigeria’s trade policy reform, sketched the following sequence of
events (1994: 11-12):

Prior to the introduction of the SAP
[structural adjustment programme], imports were subject to
quantitative controls implemented through a combination of outright
bans on agricultural and manufacturing goods and a comprehensive
licensing system

Under the SAP, between 1986 and 1988,
import and export licensing was eliminated, the list of prohibited
imports was shortened, and price and distribution controls on
agricultural exports were removed.

As it transpired, the SAP’s attempts to
achieve transparency and stability in the incentive system were
overtaken by events. The list of banned imports was once again
extended so that by 1991, about 20% of industrial imports and 30% of
agricultural imports were affected. About 1, 000 of the harmonized
system of 5, 000 six-digit imports, furthermore, remained subject to
conditional import prohibitions, which could be invoked on the basis
of balance-of-payments considerations.

Nigeria’s import prohibitions and their
justifications in terms of balance-of-payments problems have triggered
many discussions in GATT and then the WTO since the early 1980s. Nigeria
first invoked GATT Article XVIII:B on import restrictions for
balance-of-payments reasons in 1982. This led to the first consultation
with the GATT Committee on Balance of Payments Restrictions in April
1984. In notifying its import restriction measures to GATT in April
1982, Nigeria emphasized their temporary nature. The Committee
recognized the serious balance-of-payments problems faced by Nigeria in
calling for the introduction of the restrictive measures, but encouraged
it to pursue more appropriate economic stabilization policies. Follow-up
simplified consultations with the Committee were held in October 1986,
October 1988 and March 1991. At these meetings it was noted that in
spite of the removal of some of the restrictive measures, several import
bans introduced for balance-of-payments reasons remained in force.
Finally, in 1996, the WTO Committee on Balance of Payments Restrictions
decided that Nigeria’s import prohibitions could not be justified
under the balance-of-payment rules of GATT 1994. The consultations in
February 1998 discussed Nigeria’s import bans on maize, vegetable
oils, barytes and bentonites, as well as plastic articles. Although the
consultations closed without agreed conclusions regarding Nigeria’s
phase-out programme for the restrictions, members of the Committee
stressed, once again, that the import bans were not consistent with WTO
rules. Thus Nigeria’s use of import prohibitions as a trade policy
instrument has been a source of friction with its trading partners; this
practice has also been repeatedly condemned for its inconsistency with
GATT and WTO rules.

III. Challenges
faced and the outcome

In using import prohibition as a major trade policy instrument,
Nigeria has hoped that its balance-of-payments problems would be
alleviated, and that the protection offered would induce increased
output and employment of the domestic industry. Against these postulated
positive outcomes must be set several possible negative consequences of
import prohibition, including raising the domestic prices of
import-banned products, disrupting other sectors which use the
prohibited imports as raw materials, depriving government of tariff
revenue and creating vested interests among domestic producers of
prohibited products and among smugglers.

Nigeria’s balance-of-payments situation is determined primarily by
developments in the world oil market; hence it has not been amenable to
changes induced by import prohibitions. In any case, it seems clear that
protection of domestic producers is the real force behind the use of
this policy instrument. But there is little evidence that it has
produced the desired result here either. For instance, a recent study of
the textile sector — the single most important target of import
prohibition policy of the past twenty years — shows that both its output
and employment have stagnated or declined (Oyejide et al. 2003). In
addition, a survey of manufacturing-sector performance conducted by the
Manufacturers’ Association of Nigeria (1989) does not support the view
that the level of capacity utilization was positively related to the
degree of local sourcing of raw materials — one of the major channels
through which import prohibition was expected to promote increased
output and employment.

There appears to be recognition both within government and among
producers that the import prohibition policy is rendered virtually
impotent by large-scale smuggling and that this has continued in spite
of stiff penalties imposed on those involved with the importation,
transportation, storage, display or sale of prohibited items. This
recognition has not, however, led to the abandonment of the policy.
Rather, pressure has mounted to enhance its stricter implementation.
According to Moses Gbadebo, president of the National Union of Chemical,
Footwear, Rubber, Leather and Non-Metallic Product Employees, ‘it is
not enough to say we have banned items, the government’s words must be
backed with action…. the law should be properly enforced’ (Guardian
January 2004). Similarly, according to Nasir Lawal, president of the
National Union of Textile, Garment and Tailoring Workers, ‘if you
place a hundred bans and your borders still remain porous, it will only
help in increasing the income of smugglers and their agents’ (Guardian
January 2004). This concern is, apparently, fully shared by Olusegun
Obasanjo, the Nigerian president, who recently accused the Nigerian
Customs Service of ‘making nonsense of government’s import
prohibition policy’. In frustration, he was reported to have said ‘we
just have to beg them. I think other than begging, I don’t know what
else I can do. If it is possible to run a nation without customs, I will
do it’ (Guardian January 2004).

The apparent reluctance to abandon prohibition policy is reflected in
Nigeria’s responses to issues raised during various GATT and WTO
discussions on this matter. For instance, during the consultations in
1984, Nigeria pledged to eliminate its import prohibitions quickly. Over
time, many of these import bans were indeed lifted, but the policy
itself was not abandoned. Following the 1996 decision by the WTO
Committee on Balance of Payments Restrictions that Nigeria’s import
prohibitions could not be justified under WTO rules, Nigeria offered to
eliminate all such measures by early 1997 — only to begin to notify
additional ones in 1998. A further proposal was made by Nigeria to phase
out all remaining import prohibitions by 2005 under an eight-year
elimination programme (WTO 1998). This proposal argued that this period
was necessary to allow time for the ongoing customs and port reforms to
take root so as to ensure the effective administration of the resulting
price-based measures and to allow the economy to consolidate the recent
gains in the area of inflation, external reserves, interest and exchange
rates. The upsurge in the use of import prohibitions during 2001-4
raises considerable doubt with respect to Nigeria’s commitment to its
own import prohibition phase-out programme.

IV. Lessons

Several lessons can be drawn from Nigeria’s
import prohibition policy experience. Perhaps the most general of these
is that the coherent and consistent pursuit of good trade policy
requires not only a robust and appropriate domestic institutional
framework and process for trade policy-making but also a supportive and
institutionalized multilateral arrangement for trade policy
surveillance. Weaknesses in both of these may be responsible, in varying
degrees, for the persistence of Nigeria’s import prohibition policy.
Nigeria’s internal trade policy surveillance mechanism consists
largely of the domestic framework and trade policy-making process, both
articulated at length in the Trade Policy of Nigeria (Federal
Ministry of Commerce 2002). However, the country’s actual trade
policy-making deviates quite substantially from what this document
stipulates. These deviations largely explain the lack of coherence
between policy statements and policy actions; this probably also derives
from the absence of local ownership of the trade liberalization policy
which appears to have been induced by the World Bank-IMF supported
structural adjustment programme.

Within the internal trade policy surveillance
mechanism in Nigeria, vested interests built around the use of
quantitative import restrictions have acquired tremendous powers, and no
effective counterweights have evolved over time, perhaps because
consumer groups and other civil society organizations are not
sufficiently well organized. Furthermore, the mechanism lacks effective
feedback systems in the articulation, implementation and evaluation of
trade policy. In particular, trade policy initiatives are not routinely
subjected to cost-benefit analysis; and no explicit system of monitoring
and evaluation is used for modifying or changing trade policies which do
not produce desired results efficiently.

Nigeria’s membership of the WTO provides it,
in principle, with a strong external trade policy surveillance
mechanism. But the role of the WTO as an ‘agent of restraint’ in
favour of good trade policy is feasible only to the extent that two
important conditions are met. First, the government whose behaviour is
to be ‘restrained’ must be committed to good trade policy and thus
be willing to tie its own hand and use an external treaty obligation to
strengthen its hand against local vested interests. Second, the external
agent must have adequate sanctions which it is able and willing to use
to punish deviations from the pursuit of good trade policy. Neither of
these conditions appears to have been effective in dissuading Nigeria
from the continued use of its import prohibition policy.

The basic problems inherent in the framework
and process of trade policy-making in Nigeria and its surveillance are
not unknown. Some of these are eloquently summarized in a recent
statement by Olusola Faleye, president of the Lagos Chamber of Commerce
and Industry (Guardian April 2004):

We have no query with the principles of
protection, but with the process. We are concerned that the recent
import prohibition policy was not preceded by sufficient
consultation. Import prohibition…. is a major trade policy
decision which requires wide-ranging consultations, capacity surveys
and the advice of trade and economic development experts before
being pronounced as policy. Sufficient account was not taken of the
local capacity vis-á-vis local demand and issues of policy
transitions and implications for existing treaties to which Nigeria
is signatory.

Any sustained effort to eliminate import
prohibitions in Nigeria is unlikely to be permanently successful if it
does not first address these underlying problems.